nep-cna New Economics Papers
on China
Issue of 2023‒01‒02
six papers chosen by
Zheng Fang
Ohio State University

  1. Blockchains with Chinese Characteristics By Kshetri, Nir
  2. Millet, Rice, and Isolation: Origins and Persistence of the World's Most Enduring Mega-State By Kung, James Kai-sing; Özak, Ömer; Putterman, Louis; Shi, Shuang
  3. Evolution of Chinese lending to Sri Lanka since the mid-2000s: Separating myth from reality By Moramudali, Umesh; Panduwawala, Thilina
  4. Trade conflicts and credit supply spillovers: Evidence from the nobel peace prize trade shock By Cao, Jin; Dinger, Valeriya; Juelsrud, Ragnar Enger; Liaudinskas, Karolis
  5. The U.S.-China Battle for Semiconductor Supremacy and Reshaping of Global Supply Chain By Jeong, Hyung-Gon
  6. R&D Subsidies and Technological Progress in the Chinese ICT Manufacturing Industry By Li, Junjun

  1. By: Kshetri, Nir
    Abstract: The Chinese blockchain industry and market have unique, unusual and idiosyncratic characteristics. Several established companies as well as startups in China have developed and deployed innovative solutions involving blockchain. On the other hand, some uses of blockchain such as initial coin offering for capital-raising have been banned. While blockchain is a disruptive technology with a potential to transform the economy and society, it promotes decentralized governance and thus can turn centralized political structures such as those of China upside down. This paper offers an analysis of seemingly conflicting actions of the Chinese government on the blockchain front. It analyzes how China is creating a delicate balance between encouraging the use of blockchain for the growth and modernization of the economy and making sure that the technology is not used to threaten the legitimacy of the Chinese Communist Party.
    Keywords: blockchain,China,cryptocurrency,initial coin offering,product traceability,trade finance
    Date: 2022
  2. By: Kung, James Kai-sing; Özak, Ömer (Southern Methodist University); Putterman, Louis; Shi, Shuang
    Abstract: We propose and test empirically a theory describing the endogenous formation and persistence of mega-states, using China as an example. We suggest that the relative timing of the emergence of agricultural societies, and their distance from each other, set off a race between their autochthonous state-building projects, which determines their extent and persistence. Using a novel dataset describing the historical presence of Chinese states, prehistoric development, the diffusion of agriculture, and migratory distance across 1-degree x 1-degree grid cells in eastern Asia, we find that cells that adopted agriculture earlier and were close to Erlitou -- the earliest political center in eastern Asia -- remained under Chinese control for longer and continue to be a part of China today. By contrast, cells that adopted agriculture early and were located further from Erlitou developed into independent states, as agriculture provided the fertile ground for state-formation, while isolation provided time for them to develop and confront the expanding Chinese empire. Our study sheds important light on why eastern Asia kept reproducing a mega-state in the area that became China and on the determinants of its borders with other states.
    Date: 2022–06–04
  3. By: Moramudali, Umesh; Panduwawala, Thilina
    Abstract: China is Sri Lanka's largest bilateral creditor and has a significant role to play within the sovereign debt restructuring process that the crisis- stricken island nation is currently going through. This working paper provides a deep dive into China's lending to Sri Lanka over the last two decades and situates China within the overall changes in Sri Lanka's public external debt profile through its middle-income transition. Chinese lending to Sri Lanka has evolved through five distinct phases since 2000, expanding from bilateral lending to export credit and eventually balance of payments support through China Development Bank term loans since 2018 which became an alternative to raising eurobonds. The fifth phase is focused on Sri Lanka's historic sovereign default, and debt restructuring negotiations, which could define not only the future of Chinese lending to Sri Lanka but also to other BRI countries going through debt distress, including those in Africa. The ongoing debt restructuring process is not the first time Sri Lanka's government has asked for a loan restructuring from China Eximbank. In 2014, the then government proposed to restructure all Chinese loans obtained for the Hambantota Port project and create a joint venture with two Chinese SOEs to further develop the port terminals. While an election ended the earlier negotiations, the 99-year lease of the port in 2017 was a measure to address severe balance of payments issues, which the earlier plan had not tackled. The lease proceeds helped improve foreign currency reserves and there was no debt-to-equity swap nor an asset seizure, contrary to popular narrative. We found no deliberately 'hidden debt' in China's lending to Sri Lanka's public sector. Publicly available data from a number of Sri Lanka's public institutions provided full visibility for the US$ 7.4 billion in Chinese debt outstanding at end-2021. Chinese lending was then 19.6 percent of public external debt, much higher than the often-quoted 10-15 percent figures. A significant portion of Chinese debt has been recorded under state-owned enterprises, not the central government, but all of the Chinese debt was reported to the World Bank's International Debt Statistics. The nuances involved in ensuring full visibility of this debt show that public discourse, whether driven by media or academia, needs to take into account the complexities involved in how public debt is classified and reported in a country. At the same time, governments should ensure that public debt reporting is as simple, clear, and widely available as possible to facilitate open conversation.
    Date: 2022
  4. By: Cao, Jin; Dinger, Valeriya; Juelsrud, Ragnar Enger; Liaudinskas, Karolis
    Abstract: In this paper, we examine how a trade conflict's impact on the real economy can be amplified by financial intermediaries. After the Norwegian Nobel Peace Prize Committee awarded the 2010 Nobel Peace Prize to Chinese dissident Liu Xiaobo, China in practice banned imports of Norwegian salmon. The ban was an unexpected trade shock to the Norwegian salmon industry. Using bank balance sheet and credit register data, we trace how this trade shock affected the lending behavior of banks highly exposed to the salmon industry when the shock occurred. We find that, in the years following the trade shock, highly exposed banks cut back lending to non-salmon firms and households by 3-6 percent more than other banks. Furthermore, we find that the reduction in lending was not driven by the erosion of bank capital, but rather by the shift in expectations about the performance of loans to salmon producers, which drove highly exposed banks to increase their loan loss provisions and reduce risk-taking.
    Keywords: trade shock,bank lending channel,expectation shock
    JEL: F14 G21
    Date: 2022
    Abstract: The realization of digital transformation (DX) and the Fourth Industrial Revolution (4IR) has led to the development of new technologies in areas such as AI, big data, metaverse, autonomous vehicles, digital currency, and blockchain technology. While these sectors are expected to continue to grow, major countries including the United States and China are fiercely competing to secure a global supply chain for the semiconductor industry. Built on free trade, the global division of production in the semiconductor industry has driven corporate innovation and technology development. However, the trend of technological nationalism and countries’ efforts to build a value chain within their territory are expected to hurt the global semiconductor industry. The ever-deepening hegemony competition between the U.S. and China in the semiconductor industry could have a profound impact not only on the Korean economy but also on a restructuring of the global semiconductor supply chain. This study analyzes the supply chain structure and risks of the Korean semiconductor industry, along with U.S. and Chinese policies to foster the semiconductor industry, going on to explore corresponding countermeasures.
    Keywords: U.S.-China Battle; Semiconductor; Global Supply Chain
    Date: 2022–10–13
  6. By: Li, Junjun
    Abstract: In the past decades, the Chinese ICT industry has received fiscal, taxation, and financial policy support in technology R&D. This research adopts causal inference methods for mediation analysis with interaction to empirically examine the direct and indirect effects of R&D subsidies in the Chinese ICT manufacturing industry. We found that the impact of R&D subsidies on private R&D expenditure and innovation outputs is positive and statistically significant. However, higher subsidy intensity crowds out private R&D expenditures. Second, in the Eastern region, firms invest more in R&D but more in incremental rather than radical innovation. And, the enterprise average private R&D expenditure is insufficient in the ECE sector. Finally, openness and information levels positively contribute to innovation outputs. Based on the findings, we propose several policy suggestions.
    Keywords: R&D subsidies,innovation output,private R&D investment,Chinese ICT manufacturing,causal mediation analysis
    Date: 2022

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